It Is Still True That Even Mississippi Is Richer Than Britain

This will come as something of a surprise to Americans, who generally think of Mississippi being so poor as to be almost third world in the extent of its deprivation. It'll also come as something of a surprise to most visitors to Britain, who generally see London as being representative. It isn't, London itself is the richest area of The European Union. There are other areas of Britain that are counted among the poorest. Britain is, really (and I say this as a native of the place) a truly world class and world wealthy city surrounded by an entirely unremarkable European country. And now for the surprise: Britain is poorer than Mississippi.

Mark Perry has a nice little calculation of how rich ("rich" here being measured by GDP) the various US states are and then comparing them to various European countries. And the results might surprise some. Germany is around and about Missouri, 38 on the list of states. The UK is just below West Virginia, number 47.

However, this isn't quite and totally exactly correct.

What Professor Perry has done is compare the purchasing power parity adjusted GDPs of the various other countries with the US state GDPs (actually, GVA, but that makes no difference here). And that's very nearly the right thing to do. If we want to compare how well people are doing then we've got to find some method of adjusting for the fact that things have different prices in different places. Food is rather more expensive in Europe than the US, medical care rather cheaper. We need some manner of adjusting for this: PPP is the solution. More of an art than a calculation but still, it's the generally accepted manner of doing things.

At which point we can declare Perry to be correct. But we should in fact go that one stage further. As you will have noticed prices do rather vary across the US. The most obvious difference is in housing prices but groceries too vary by location. Given the size of the US we should probably therefore not be comparing just the state GDPs. We should be adjusting those for those price variances within the US: that is, doing a further PPP adjustment for prices internal to the US.

But as we can see there’s different PPP adjustments for different States. If $100 will buy you $115 worth of goods in Mississippi this is the same statement as the correct PPP adjustment for Mississippi incomes, or in this case GDP, is 100:115. Or, if you prefer, Mississippi’s properly PPP adjusted GDP per capita is $40,400 or so: well above the UK’s $36,200.

And yes, it is generally (although not necessarily wholly) true that PPP adjustments like this raise income and or GDP in poorer places and lower them in richer. So we would expect properly adjusting for all poor State GDPs by State PPPs to increase the recorded incomes in all of those poor States.

Britain really is poorer than even the poorest of the US States, yes, including even Mississippi.

We're in a different year from when I originally wrote that so the figures have changed. But using Perry's current numbers we find, after adjusting for Mississippi's PPP as against the US national one, that Mississippi really is richer (only fractionally but still) than my native Britain.

This does obviously lead to public policy matters about economics and the economy. Even what are generally regarded as the poorest and least successful parts of the US are richer than what we do consider to be reasonably successful nations elsewhere. Sweden and Denmark for example, if we make similar adjustments, would be placed somewhere around Alabama and Arkansas. Perhaps those icy Nordic social democracies might have interesting lessons for the US but we probably shouldn't get too carried away. Because by the standards of the US itself they're not actually greatly rich or successful places.